PDF BetaPro S&P 500 Daily Inverse ETF (HIU:TSX)

Interim Report | June 30, 2018

BetaPro S&P 500? Daily Inverse ETF (HIU:TSX)

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BENCHMARK BETAPRO

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Contents

MANAGEMENT REPORT OF FUND PERFORMANCE Management Discussion of Fund Performance . . . . . . . . . . . . . . . . . . . . . 1 Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Past Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Summary of Investment Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

MANAGER'S RESPONSIBILITY FOR FINANCIAL REPORTING. . . . . . . . . . . . 12 FINANCIAL STATEMENTS

Statements of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Statements of Changes in Financial Position. . . . . . . . . . . . . . . . . . . . . . . 15 Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Schedule of Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Letter from the President and Co-CEO

The rst half of 2018 has been remarkable for both the Canadian ETF industry and Horizons ETFs Management (Canada) Inc. ("Horizons ETFs"). The industry reached new heights, surpassing $156 billion in assets under management ("AUM"), as at June 30, 2018. Horizons ETFs reached a new pinnacle as well, surpassing more than $10 billion in AUM as at the same date. In addition, we have added two new, innovative ETFs so far this year, giving us a total of 80 di erent investment tools available for our clients.

In February, we brought to market our second marijuana-focused ETF ? the Horizons Emerging Marijuana Growers Index ETF ("HMJR"). HMJR is the rst ETF in Canada to give investors direct exposure to blossoming small-cap marijuana cultivation and distribution companies. HMJR provides direct, often referred to as `pure-play', global exposure to the sector, by focusing on the smaller, emerging producers. Our rst marijuana ETF ? the Horizons Marijuana Life Sciences Index ETF ("HMMJ") ? gives investors broad diversi ed exposure to the North American marijuana sector.

Speaking of HMMJ, futures on units of this ETF began trading on the Montreal Exchange in June. We view this listing as recognition by the Canadian investor marketplace that HMMJ is a key benchmark for marijuana investing in Canada.

In June, we launched yet another highly innovative ETF ? the Horizons Blockchain Technology & Hardware Index ETF ("BKCH"). BKCH provides investors with diversi ed exposure to companies involved in the new, disruptive technology frontier: blockchain ? a shareable digital ledger that logs and tracks valuable information such as transactions or assets, o ering virtually endless applications. BKCH provides a diversi ed way to invest in the blockchain ecosystem and infrastructure without taking on a lot of the risks of buying unknown, early stage technology companies.

Regardless of market conditions, our extensive suite of ETFs gives investors the tools they need to help meet their nancial objectives. For more information on all our strategies, please visit where we o er a range of resources designed to inform and educate ETF investors.

Thank you for your continued support.

Sincerely,

Steven J. Hawkins, President & Co-CEO Horizons ETFs Management (Canada) Inc.

P.S. On a personal note, I would like to extend my sincere appreciation to the fantastic team of professionals I work with at Horizons ETFs. They played a vital role in helping me win `CEO of the Year' at the 2018 Wealth Professional Awards.

BetaPro S&P 500? Daily Inverse ETF

MANAGEMENT REPORT OF FUND PERFORMANCE

This interim management report of fund performance for BetaPro S&P 500? Daily Inverse ETF ("HIU" or the "ETF") contains nancial highlights and is included with the unaudited interim nancial statements for the investment fund. You may

request a copy of the investment fund's unaudited interim or audited annual nancial statements, interim or annual management report of fund performance, current proxy voting policies and procedures, proxy voting disclosure record or quarterly portfolio disclosures, at no cost, by calling (toll free) 1-866-641-5739, or (416) 933-5745, by writing to Horizons ETFs Management (Canada) Inc. ("Horizons Management" or the "Manager"), at 55 University Avenue, Suite 800, Toronto, Ontario, M5J 2H7, by visiting our website at or through SEDAR at .

This document may contain forward-looking statements relating to anticipated future events, results, circumstances, performance, or expectations that are not historical facts but instead represent our beliefs regarding future events. By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. There is signi cant risk that predictions and other forward-looking statements will not prove to be accurate. We caution readers of this document not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to di er materially from the targets, expectations, estimates or intentions expressed or implied in the forward-looking statements.

Actual results may di er materially from management expectations as projected in such forward-looking statements for a variety of reasons, including but not limited to market and general economic conditions, interest rates, regulatory and statutory developments, the e ects of competition in the geographic and business areas in which the ETF may invest and the risks detailed from time to time in the ETF's simpli ed prospectus. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors. We caution that the foregoing list of factors is not exhaustive, and that when relying on forward-looking statements to make decisions with respect to investing in the ETF, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. Due to the potential impact of these factors, the Manager does not undertake, and speci cally disclaims, any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law.

Management Discussion of Fund Performance

Investment Objective and Strategy

HIU seeks daily investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that endeavour to correspond to one times (100%) the inverse (opposite) of the daily performance of the S&P 500? (the "Underlying Index", Bloomberg ticker: SPXT). Any U.S. dollar gains or losses as a result of the ETF's investment will be hedged back to the Canadian dollar to the best of its ability.

If HIU is successful in meeting its investment objective, its net asset value should gain approximately as much on a given day, on a percentage basis, as the S&P 500? when this Underlying Index declines on that given day. Conversely, HIU's net asset value should lose approximately as much on a given day, on a percentage basis, as the S&P 500? when this Underlying Index rises on that given day.

HIU takes positions in nancial instruments that, in combination, should have similar daily return characteristics as one times (100%) the inverse (opposite) of the S&P 500?. In order to achieve this objective, the total underlying notional value of these instruments will typically not exceed one times the total assets of the ETF. Assets not invested in nancial instruments may be invested in debt instruments or money market instruments with a term not to exceed 365 days, or reverse repurchase agreements with a term not to exceed 30 days.

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BetaPro S&P 500? Daily Inverse ETF

Management Discussion of Fund Performance (continued)

Value of the Underlying Index

HIU typically uses the S&P 500? as determined at approximately 4:00 p.m. (EST) as the reference for its daily investment objective.

About the Underlying Index

The S&P 500? includes 500 leading companies in leading industries of the U.S. economy. The S&P 500? is also the U.S. component of the S&P Global 1200.

Risk

The ETF is very di erent from most other exchange-traded funds. The ETF uses forward agreements that rebalance daily and should not be expected to return the precise inverse (i.e. ? 100%) return of the Underlying Index over any period of time other than daily. Investors should monitor their investment in the ETF as often as daily.

When comparing benchmark returns of the ETF over any period other than daily, volatility of the Underlying Index is a signi cant factor as a result of the rebalancing process. The returns of the ETF over periods longer than one day will, under most market conditions, be in the opposite direction from the performance of its Underlying Index for the same period, and the returns of the ETF can, based on historical returns, generally be expected to be substantially similar to the inverse performance of the Underlying Index for the same period. However, the deviation of returns of the ETF from the inverse performance of the Underlying Index can be expected to become more pronounced as the volatility of the Underlying Index, and/or the period of time, increases.

The Manager performs a review of the ETF's risk rating at least annually, as well as when there is a material change in the ETF's investment objective or investment strategies. The current risk rating for the ETF is: medium.

Risk ratings are determined based on the historical volatility of the ETF as measured by the standard deviation of its performance against its mean. The risk categorization of the ETF may change over time and historical volatility is not indicative of future volatility. Generally, a risk rating is assigned to the ETF based on a blend of the historical rolling 3-year and 5-year standard deviations of its return (or, generally, commencing with prospectus renewals after September 1, 2017, a rolling 10-year standard deviation), the return of its Underlying Index, or of an applicable proxy index. In cases where the Manager believes that this methodology produces a result that is not indicative of the ETF's future volatility, the risk rating may be determined by the ETF's category. Risk ratings are not intended for use as a substitute for undertaking a proper and complete suitability or nancial assessment by an investment advisor.

Investments in the units of the ETF are speculative, involve a high degree of risk and are suitable only for persons who are able to assume the risk of losing their entire investment. The Manager, as a summary for existing investors, is providing the list below of the risks to which an investment in the ETF may be subject. Prospective investors should read the ETF's most recent prospectus and consider the full description of the risks contained therein before purchasing units.

The risks to which an investment in the ETF is subject are listed below and have not changed from the list of risks found in the ETF's most recent prospectus. A full description of each risk listed below may also be found in the most recent prospectus. The most recent prospectus is available at or from , or by calling Horizons ETFs Management (Canada) Inc. at (toll free) 1-866-641-5739, or at (416) 933-5745.

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BetaPro S&P 500? Daily Inverse ETF Management Discussion of Fund Performance (continued)

? Equity risk ? Leverage risk ? Long term performance risk ? Price volatility risk ? Historic volatility ? Concentration risk ? Aggressive investment technique risk ? Trading in derivatives is highly leveraged ? Corresponding net asset value risk ? Counterparty risk ? Inverse correlation risk ? Liquidity risk ? Market risk ? Early closing risk ? Unit consolidation and unit split risk

? Regulatory risk ? No assurance of meeting investment objective ? Tax risk ? Con icts of interest ? Liability of unitholders

? Reliance on the manager ? Reverse repurchase transaction risk ? Designated broker/dealer risk ? Exchange risk ? Borrowing risk ? Changes to the Underlying Index ? Foreign exchange risk ? Exchange rate risk ? Securities lending risk

The degree of the price volatility risk will vary from period to period depending on the volatility of the Underlying Index. Please refer to the Results of Operations section for further discussion on the impact of price volatility on the performance of the ETF relative to its Underlying Index.

Results of Operations

For the six-month period ended June 30, 2018, units of the ETF returned -3.11%. This compares to a return of 2.65% for the Underlying Index for the same period. The above gures are adjusted for distributions, if any. This ETF does not seek to meet its investment objective over any period other than daily, as the ETF is rebalanced daily to ensure an investor's risk is limited to the current value of their investment.

When comparing benchmark returns of the ETF over any period other than daily, volatility of the Underlying Index is a signi cant factor as a result of the rebalancing process. While the returns of the ETF can, based on historical returns, generally be expected to be substantially similar to the inverse performance of the Underlying Index for the same period, the deviation of returns of the ETF from the inverse performance of the Underlying Index can be expected to become more pronounced as the volatility of the Underlying Index, and/or the period of time, increases.

A perfect daily correlation of 100% of the daily inverse return of the Underlying Index would be a correlation of 1.0. The ETF has achieved a perfect daily correlation to its stated Underlying Index for the period ended June 30, 2018, of 1.0000.

The S&P 500? is widely regarded as the best single gauge of the large capitalization U.S. equity market. For the six-month period ended June 30, 2018, the top performers in the Underlying Index were Abiomed Inc., Net ix Inc. and Twitter Inc., gaining 118.26%, 103.91% and 81.88%, respectively. The worst performers in the Underlying Index for the period were L Brands Inc., Arconic Inc. and Dentsply Sirona Inc., returning -38.76%, -37.58% and -33.51%, respectively.

Horizons Management does not endeavour to predict market direction, changes that may occur in global scal and monetary policies, the e ect of additional geopolitical concerns, or other unforeseen crises. Horizons Management and the ETF are agnostic as to their impact on global equity, xed income, currency, and commodity markets generally, and the broad U.S. equity market speci cally. They are only of concern to the ETF in so much as there is some minimal risk that

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BetaPro S&P 500? Daily Inverse ETF Management Discussion of Fund Performance (continued)

could a ect its ability to meet its investment objective. Please refer to the risk factors section in the ETF's prospectus for a more detailed discussion.

The ETF is subject to volatility as it seeks to achieve the single inverse (opposite) of the daily performance of the Underlying Index. The ETF may experience greater volatility than securities comprising the Underlying Index and thus have the potential for greater losses. While the investment objective of the ETF is designed to correspond to the single inverse (opposite) of the Underlying Index, it should be noted that, when comparing benchmark returns of the ETF over any period other than daily, volatility of the Underlying Index is a signi cant factor as a result of the rebalancing process. While the returns of the ETF can, based on historical returns, generally be expected to be substantially similar to the inverse performance of the Underlying Index for the same period, the deviation of returns of the ETF from the inverse performance of the Underlying Index can be expected to become more pronounced as the volatility of the Underlying Index, and/or the period of time, increases.

The following table illustrates the impact of two factors, benchmark volatility and benchmark performance, on a fund's period performance. The table shows estimated fund returns for a number of combinations of benchmark performance and benchmark volatility over a one year period.

Assumptions used in the table include: a) no ETF expenses and b) borrowing/lending rates of zero percent. If the ETF's expenses were included, the ETF's performance would be lower than shown.

One Year Benchmark Performance

-40% -20%

0% 20% 40%

-100% One Year Benchmark Performance 40% 20% 0% -20% -40%

0% 66.7% 25.0%

0.0% -16.7% -28.6%

Benchmark Volatility

25%

50%

56.6%

29.8%

17.4%

-2.6%

-6.1%

-22.1%

-21.7%

-35.1%

-32.9%

-44.4%

75% -5.0% -28.8% -43.0% -52.5% -59.3%

Per the above, it can be concluded that for any given benchmark return, increased volatility will negatively impact the relative period performance of the ETF to the Underlying Index.

The annualized volatility of each of the Underlying Index and the ETF was 12.58% and 13.56%, respectively, for the period ended June 30, 2018.

The ETF may, at times, have very large purchase and redemption activity. However, the performance of the ETF is primarily a ected by the performance of its forward agreement, which is rebalanced daily and is tied to the performance of the ETF's Underlying Index. The performance and liquidity of the ETF is una ected by the asset size of the ETF, or by purchase and redemption activity, as these transactions are taken into account during the daily rebalancing of the forward agreement.

Presentation

The attached nancial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"). Any mention of total net assets, net assets, net asset value or increase (decrease) in net assets in the nancial statements and/or management report of fund performance is referring to net assets or increase (decrease) in net assets attributable to holders of redeemable units as reported under IFRS. 4

BetaPro S&P 500? Daily Inverse ETF

Management Discussion of Fund Performance (continued)

Forward Agreement

In order to achieve its investment objective, the ETF has entered into multiple forward agreements (the "Forward Agreements") with one or more bank counterparties (each a "Forward Counterparty"). The Forward Agreements provide both positive exposure to the Underlying Index and negative exposure to the Underlying Index. The ETF generally invests its assets in interest bearing accounts and short-term Canadian federal or provincial treasury bills to earn prevailing shortterm market interest rates to serve as collateral for the Forward Agreements.

The one or more Forward Counterparties to the Forward Agreements entered into by the ETF must be a chartered Canadian bank or an a liate of a chartered Canadian bank whose obligations are guaranteed by a chartered Canadian bank, and has a designated rating.

In respect of short-term securities or instruments (where the maturity date of the security or instrument is less than one year), Forward Counterparties must have a designated rating for Commercial Paper/Short-Term Debt no lower than (a) Dominion Bond Rating Service Limited ("DBRS") - "R-1(low)"; (b) Fitch Ratings ("Fitch") - "F1"; (c) Moody's Investors Service ("Moody's") - "P-1"; and (d) Standard & Poor's ("S&P") - "A-1(Low)".

In respect of long-term securities or instruments (where the maturity date of the security or instrument is equal to or greater than one year), Forward Counterparties must have a designated rating for Long-Term Debt no lower than (a) DBRS - "A"; (b) Fitch - "A"; (c) Moody's - "A2"; and (d) S&P - "A".

Forward Counterparties are subject to the applicable short-term or long-term designated rating restrictions listed above. The Forward Counterparty to the Forward Agreements meets those designated rating requirements.

Each Forward Agreement has a remaining term to maturity at any point in time of less than ve years which, with the consent of the ETF and the applicable Forward Counterparty, will be extended annually for a xed number of years and, provided no default or event of default and no unresolved hedging event or disruption event has occurred and is continuing, the ETF has the ability to request the termination of its exposure under a Forward Agreement, in whole or in part, at any time.

Since the Forward Agreements, like most forward agreements, may settle the obligations of each party on a net basis, the exposure of the ETF to the credit risk of the Forward Counterparty is limited to the positive mark-to-market of the Forward Agreements entered into with that Forward Counterparty, which is calculated and accrued on a daily basis.

Recent Developments

There are no recent industry, management or ETF related developments that are pertinent to the present and future of the ETF.

Related Party Transactions

There were no related party portfolio transactions during the current reporting period. Certain services have been provided to the ETF by related parties, and those relationships are described below.

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